Presenting a live 90-minute webinar with interactive Q&A Drafting and Negotiating Convertible Preferred Stock Provisions: Protecting Interests of Businesses and Investors Structuring Liquidation and Distribution Preferences, Conversion Rights, Negative Control Rights, Anti-Dilution Protection, and Tax Provisions THURSDAY, MAY 8, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Justin Bowen, Partner, Bowen Tax Law , Los Angeles Shawn Haghighi, Partner, Sklar Kirsh LLP , Los Angeles Stephen I. (Steve) Halper, Of Counsel, Sklar Kirsh LLP , Los Angeles The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Drafting and Negotiating Convertible Preferred Stock Provisions Dividend and Liquidation Preferences Conversion Rights and Anti-Dilution Protection Redemption and Voting Rights Investor Rights Agreement Analysis of Sample Venture Capital Term Sheet Stafford Live Webinar, May 8, 2014 This presentation should not be considered legal advice. 5
Drafting and Negotiating Convertible Preferred Stock Provisions Dividend and Liquidation Preferences Priority Dividend Rights (right to dividends in priority to junior series/classes of stock) Cumulative and compounding: The holders of shares of the Series A Preferred Stock shall be entitled to annual dividends in an amount equal to x% of (i) the original issue price of the Series A Preferred Stock (as may be adjusted for stock dividends, splits and the like), plus (ii) all dividends then accrued [or accumulated], prior to and in preference to any dividend payment to the Common Stock. Cumulative, but not compounding: The holders of shares of the Series A Preferred Stock shall be entitled to annual dividends in an amount equal to x% of the original issue price of the Series A Preferred Stock (as may be adjusted for stock dividends, splits and the like), prior to and in preference to any dividend payment to the Common Stock. Non-cumulative: No dividends shall be declared on the Common Stock until each share of the Series A Preferred Stock has received a dividend equity to x% of its original issue price, when, as and if declared by the Board of Directors. 6
Drafting and Negotiating Convertible Preferred Stock Provisions Dividend and Liquidation Preferences Participating Dividend Rights (right to share in dividends to common stock) Participating: After payment of the [priority dividend amount] , any additional dividends shall be paid to the holders of shares of the Series A Preferred Stock and the Common Stock pro rata based on the number of shares of Common Stock then outstanding, assuming conversion in full of all of the issued and outstanding shares of the Series A Preferred Stock. When, as and if declared by the Board of Directors , dividends shall be paid to the holders of shares of the Series A Preferred Stock and the Common Stock pro rata based on the number of shares of Common Stock then outstanding, assuming conversion in full of all of the issued and outstanding shares of the Series A Preferred Stock. 7
Drafting and Negotiating Convertible Preferred Stock Provisions Dividend and Liquidation Preferences Priority Liquidation Preference (right to liquidation proceeds in priority to junior series/classes of stock) In the event of any Liquidation Event, the holders of shares of Series A Preferred Stock shall be entitled to receive, prior to and in preference to any distribution of the proceeds of such Liquidation Event (the “Proceeds”) to the holders of Common Stock by reason of their ownership thereof, Proceeds in an amount per share equal to the sum of the Original Issue Price for the Series A Preferred Stock, plus declared but unpaid dividends thereon . In the event of any Liquidation Event, the holders of shares of Series A Preferred Stock shall be entitled to receive, prior to and in preference to any distribution of the proceeds of such Liquidation Event (the “Proceeds”) to the holders of Common Stock by reason of their ownership thereof, Proceeds in an amount per share equal to the sum of the Original Issue Price for the Series A Preferred Stock, plus accrued but unpaid dividends thereon, whether or not declared . Can also provide for a multiple of the Original Issue Price. 8
Drafting and Negotiating Convertible Preferred Stock Provisions Dividend and Liquidation Preferences Participating Liquidation Preferences (right to share in liquidation proceeds to common stock) Non-Participating: Upon completion of the [Series A Preferred Stock’s priority preference] distribution, all remaining Proceeds available for distribution to stockholders shall be distributed to the holders of Common Stock pro rata based on the number of shares of Common Stock held by each. Fully Participating: Upon completion of the [Series A Preferred Stock’s priority preference] distribution, all remaining Proceeds available for distribution to stockholders shall be distributed to the holders of shares of the Series A Preferred Stock and the Common Stock pro rata according to the number of shares of Common Stock (i) then held, with respect to holders of the Common Stock, and (ii) into which the issued and outstanding shares of the Series A Preferred Stock are then convertible. 9
Drafting and Negotiating Convertible Preferred Stock Provisions Dividend and Liquidation Preferences Participating Liquidation Preferences (right to share in liquidation proceeds to common stock) Capped Participating: Upon completion of the [Series A Preferred Stock’s priority preference] distribution, all remaining Proceeds available for distribution to stockholders shall be distributed to the holders of shares of the Common Stock and the Series A Preferred Stock (as if such holders of shares of the Series A Preferred Stock had converted their shares into shares of Common Stock in accordance with the provisions of Section [x] until the holders of shares of the Series A Preferred Stock have received, in addition to the amount of the [Series A Preferred Stock’s priority preference ], an amount equal to two times the Original Issue Price for each share of Series A Preferred held by such holders. Thereafter, the remaining Proceeds available for distribution to stockholders shall be distributed ratably to the holders of shares of the Common Stock. 10
Drafting and Negotiating Convertible Preferred Stock Provisions Conversion Rights and Anti-Dilution Protection Conversion Rights Voluntary Conversion: Each share of Series A Preferred Stock shall be convertible at the option of the holder thereof , without payment of additional consideration, into fully paid and nonassessable shares of Common Stock at any time after the date of issuance of such share. The number of share of Common Stock into which one share of Series A Preferred Stock is convertible is referred as the “Conversion Rate,” which shall be equal to the Original Issue Price of the Series A Preferred Stock divided by the Conversion Price. The Conversion Price shall initially be equal to the Original Issue Price of the Series A Preferred Stock and shall be subject to adjustment from time to time as provided for below. 11
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